
[Federal Register Volume 79, Number 61 (Monday, March 31, 2014)]
[Notices]
[Pages 18101-18104]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-07039]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71794; File No. SR-NASDAQ-2014-025]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Modify NASDAQ's DOT, DOTI, and LIST Routing Strategies

March 25, 2014.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'')\1\, and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 11, 2014, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASDAQ proposes to modify Rule 4758 with respect to its DOT, DOTI, 
and LIST routing strategies. The text of the proposed rule change is 
available on the Exchange's Web site at http://nasdaq.cchwallstreet.com, at the principal office of the Exchange, and 
at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    NASDAQ offers its members optional routing functionality that 
allows them to use NASDAQ's facilities to access liquidity available on 
other trading venues. The functionality includes a range of defined 
routing algorithms--known as strategies--that determine the 
destinations and pattern of routing. The particular pattern of routing 
to other venues associated with a particular strategy is referred to in 
Rule 4758 as the ``System routing table'' for that strategy. All 
routing is designed to be conducted in a manner consistent with the 
requirements of Regulation NMS.
    NASDAQ currently offers a set of strategies designed to allow 
market participants to route orders to the primary market on which a 
security is listed. NASDAQ is proposing minor changes to these 
strategies to improve their functioning and the clarity of the rule 
that describes them in certain situations. First, NASDAQ offers the DOT 
strategy (which includes several variations) as a means of designating 
an order for routing to the New York Stock Exchange (``NYSE'') or NYSE 
MKT \3\ for participation in their respective opening or closing 
processes. DOT orders are routed directly to NYSE or NYSE MKT, as 
appropriate. After attempting to execute in the opening or closing 
process, if any shares remain unexecuted, DOT orders thereafter check 
the NASDAQ Market Center System for available shares and are converted 
into SCAN or STGY orders, depending on the designation of the entering 
firm.\4\
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    \3\ Formerly, NYSE Amex. NASDAQ is amending Rule 4758 to reflect 
the change in this exchange's name.
    \4\ STGY is a routing option under which orders check the System 
for available shares and simultaneously route the remaining shares 
to destinations on the applicable System routing table. If shares 
remain un-executed after routing, they are posted on the NASDAQ 
book. Once the order is on the book, if the order is subsequently 
locked or crossed by another accessible market center, the System 
routes the order to the locking or crossing market center. SCAN 
behaves similarly, but once the order is on the NASDAQ book, the 
System will not route the order to a locking or crossing market 
center. Although both options are described in Rule 4758 as 
variations of the DOT strategy, NASDAQ's system specifications refer 
to the SCAN option as either ``DOTA'' or ``DOTD'' and refer to the 
STGY option as ``DOTM.''

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[[Page 18102]]

    NASDAQ is proposing to modify the language of the rule to make it 
clear that a DOT order may be designated to participate in the opening 
only or in the closing only (as provided by the specifications of the 
destination market) or to remain in force after the opening or closing, 
as applicable. An order entered before the open (or close) that is 
designated as opening only (or closing only) will likely be cancelled 
by the destination market after the open (or close) in accordance with 
its terms and therefore will not return to NASDAQ, even if not executed 
in full. Similarly, if NASDAQ receives a DOT order after the security 
has opened (or closed) and the order has been designated to participate 
in the opening only (or closing only), the order will nevertheless be 
routed to NYSE or NYSE MKT (which would be expected to reject the order 
based on its designation as opening only or closing only).\5\ NASDAQ is 
also proposing to add language to the rule to make it clear that the 
conversion of DOT orders into SCAN or STGY orders applies only if the 
orders are not designated opening or closing only and are not fully 
executed, rejected, or cancelled by the market to which they are 
routed. NASDAQ is also modifying a sentence describing the treatment of 
DOT orders entered after 9:30 a.m. (i.e., orders that are intended to 
participate in the opening but that are entered after the opening); 
such orders are not routed to NYSE or NYSE MKT, but rather are 
immediately converted to SCAN or STGY orders. The modifications make it 
clear that this processing logic would be applied to an order that is 
intended to participate in the close but that is entered after the 
close. The modifications also make it clear that the processing logic 
would not be applied if the order was designated as opening only or 
closing only, since, as described above, the order would be routed and 
would be expected to be rejected. Finally, NASDAQ is modifying the rule 
to provide that DOT orders that are designated to participate in an 
opening process and that are received by NASDAQ before the destination 
market can receive them will be held until such time as the destination 
market can receive them. Currently, such orders are routed to the 
destination market and may be rejected.
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    \5\ In the event that an opening or closing only order was 
returned to NASDAQ after the time of the open or close on the 
destination market, NASDAQ would cancel the order.
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    NASDAQ is proposing similar changes to the DOTI routing strategy. 
DOTI is a routing option for orders that the entering firm wishes to 
direct to the NYSE or NYSE MKT without them returning to the Nasdaq 
Market Center. DOTI orders check the System for available shares and 
then are sent to destinations on the System routing table before being 
sent to NYSE or NYSE MKT, as appropriate. Alternatively, the member 
entering the order may opt to have it check the System and then be sent 
directly to NYSE or NYSE MKT, without routing to destinations on the 
System routing table.\6\ DOTI orders do not return to the Nasdaq Market 
Center book after routing.
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    \6\ This option is referred to in system specifications as 
``DOTZ''.
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    As is the case with DOT, NASDAQ is modifying the language of the 
rule to make it clear that a DOTI order may be designated to 
participate in the opening only or in the closing only (as provided by 
the specifications of the destination market) or to remain in force 
after the opening or closing, as applicable. An order entered before 
the open (or close) that is designated as opening only (or closing 
only) will likely be cancelled by the destination market after the open 
(or close) in accordance with its terms and therefore will not return 
to NASDAQ, even if not executed in full. Similarly, if NASDAQ receives 
a DOTI order after the security has opened (or closed) and the order 
has been designated to participate in the opening only (or closing 
only), the order will nevertheless be routed to NYSE or NYSE MKT (which 
may reject the order based on its designation as opening only or 
closing only).\7\ NASDAQ is also proposing to modify the rule to 
provide that DOTI orders that are designated to participate in an 
opening process and that are received by NASDAQ before the destination 
market can receive them will be held until such time as the destination 
market can receive them.
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    \7\ In the event that an opening or closing only order was 
returned to NASDAQ after the time of the open or close on the 
destination market, NASDAQ would cancel the order.
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    LIST is a routing option designed to allow orders to participate in 
the opening and/or closing process of the primary listing market for a 
security, and to follow additional routing logic as described below.\8\ 
A LIST order received before the security has opened on its primary 
listing market will be routed to the primary listing market for 
participation in that market's opening process. After the security has 
opened on its primary listing market, unexecuted shares will be 
returned to the NASDAQ system.\9\ Thereafter, the order will check the 
System for available shares and simultaneously route the remaining 
shares to destinations on the System routing table. Any remaining 
shares will be posted on the book. As with DOT and DOTI, NASDAQ is 
proposing to modify the rule governing LIST orders to provide that if a 
LIST order is received by NASDAQ before the destination market is able 
to receive orders for its opening process, the order will be held until 
such time as the destination market can receive it.
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    \8\ NASDAQ is adding this language to the existing rule text to 
describe the overall framework for the routing strategy.
    \9\ NASDAQ is proposing to add language to the rule to make it 
clear that the order would be returned only to the extent that the 
order has not been designated opening only and has not been fully 
executed, rejected, or cancelled by the destination market.
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    NASDAQ is also proposing to modify the language of the rule 
governing LIST orders to make it clear that a LIST order may be 
designated to participate in the opening only, as provided by the 
specifications of the destination market. Accordingly, an order entered 
before the open that is designated as opening only will likely be 
cancelled by the destination market after the open in accordance with 
its terms and therefore will not return to NASDAQ, even if not executed 
in full. Similarly, if NASDAQ receives a LIST order after the security 
has opened and the order has been designated to participate in the 
opening only, the order will nevertheless be routed to the primary 
[sic] market (which would be expected to reject the order based on its 
designation as opening only).\10\
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    \10\ In the event that an opening only order was returned to 
NASDAQ after the time of the open on the destination market, NASDAQ 
would cancel the order.
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    Otherwise, if an order that has not been designated as opening only 
\11\ is entered after the market open (but before a time that is two 
minutes before market close),\12\ NASDAQ will check

[[Page 18103]]

the System for available shares and simultaneously route the remaining 
shares to destinations on the System routing table, with remaining 
shares posted on the book. Once on the book, if the order is 
subsequently locked or crossed by another market center, the System 
will not route the order to the locking or crossing market center.\13\ 
Two minutes before market close, all LIST orders on the book will route 
to the security's primary listing market for participation in its 
closing process.\14\ Similarly, if a LIST order is received at or after 
a time that is two minutes before market close but before market close, 
NASDAQ will check the System for available shares and simultaneously 
route the remaining shares to destinations on the System routing table; 
remaining shares will be routed to the security's primary listing 
market to participate in its closing process.\15\ After the security 
has closed on the primary listing market, a LIST order that has not 
been designated as closing only and that has not been fully executed, 
rejected or cancelled by the destination market will be returned to 
NASDAQ and unexecuted shares will be posted to the NASDAQ book.\16\
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    \11\ NASDAQ is proposing to add qualifying language to the rule 
to make it clear that the behavior of orders after the market open 
would not apply to an order that has been designated as opening 
only.
    \12\ NASDAQ is proposing to replace references to specific 
times, such as 4:00 p.m., in Rule 4758 with more general references 
to account for the possibility of variation in the precise time of 
NASDAQ's system hours, the time of the market open and close, and 
the periodic occurrence of days when the markets are planned to 
close early (e.g., the day after Thanksgiving).
    \13\ If trading in the security is stopped across all markets, 
LIST orders will be sent to the primary listing market to 
participate in its re-opening process. When normal trading resumes, 
unexecuted shares will be removed from the primary listing market 
and posted on the NASDAQ book. LIST orders may not be assigned a 
time-in-force of [sic] good-till-cancelled. NASDAQ is proposing to 
modify the rule language governing this behavior to improve its 
clarity by replacing the words ``cancelled off of the primary'' with 
the words ``removed from the primary listing market.''
    \14\ NASDAQ is proposing to delete language stating that the 
routed order ``will be cancelled by the System''. The language was 
intended to reflect the fact that the routed shares would no longer 
be on the NASDAQ book, but the reference to the order being 
``cancelled'' may be confusing and therefore is being deleted.
    \15\ NASDAQ notes, however, the certain trading venues have 
established cut-off times for participation in their opening and 
closing processes. Orders received by NASDAQ before the time of the 
opening or closing processes will be routed to the primary market; 
however, if a market receives such orders after its applicable cut-
off time, the order may be rejected by the destination market.
    \16\ NASDAQ is proposing to add language to the existing 
sentence regarding shares posting to the NASDAQ book to make it 
clear that it applies after the security has closed on the primary 
market and applies only if the order has not been designated as 
closing only and has not been fully executed, rejected, or cancelled 
by the destination market.
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    NASDAQ is also modifying the language of the rule governing LIST 
orders to make it clear that a LIST order may be designated to 
participate in the closing only, as provided by the specifications of 
the destination market. Accordingly, an order entered before the close 
that is designated as closing only will likely be cancelled by the 
destination market after the close in accordance with its terms and 
therefore will not return to NASDAQ, even if not executed in full. 
Similarly, if NASDAQ receives a LIST order after the security has 
closed and the order has been designated to participate in the closing 
only, the order will nevertheless be routed to the primary [sic] market 
(which may reject the order based on its designation as closing 
only).\17\
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    \17\ In the event that a closing only order was returned to 
NASDAQ after the time of the close on the destination market, NASDAQ 
would cancel the order.
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    Currently, any LIST order shares that are received after market 
close are posted to the NASDAQ book. However, NASDAQ is modifying this 
behavior, so that rather than posting to the NASDAQ book immediately, 
the order will check the System for available shares and simultaneously 
route the remaining shares to destinations on the System routing table. 
Any remaining shares will then be posted to the NASDAQ book.\18\
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    \18\ As described above, this logic would not apply if the order 
was designated as closing only. NASDAQ is proposing to add language 
to make it clear that the routing of orders entered after market 
close would not apply if the order was designated as closing only.
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2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\19\ in general, and with 
Section 6(b)(5) of the Act \20\ in particular, in that the proposal is 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. NASDAQ 
believes that the changes will increase the flexibility of market 
participants by making it clear that they may designate DOT, DOTI, and 
LIST orders to participate in the opening only or closing only of a 
primary listing venue, in accordance with the specifications of the 
primary market, and by providing that orders entered before a 
destination market is ready to receive them will be held by NASDAQ 
until they may be routed. In addition, the change with respect to LIST 
orders received after a market close will increase the likelihood of 
such order's executing, by providing that they will be routed before 
posting to the NASDAQ book. The changes also increase the clarity and 
precision of the rule text. Collectively, these changes facilitate 
transactions in securities and perfect the mechanism of a free and open 
market and a national market system by providing NASDAQ members with 
greater control over the routing of their orders.
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    \19\ 15 U.S.C. 78f.
    \20\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    NASDAQ does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended. NASDAQ believes 
that the changes will promote competition by enhancing the value of 
NASDAQ's routing functionality to its members. However, since the use 
of NASDAQ's routing services is optional and members have numerous 
alternative mechanisms for order routing, the changes will not impair 
the ability of members to use other means of accessing competitive 
trading venues.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(ii) [sic] of the Act \21\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\22\
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    \21\ 15 U.S.C. 78s(b)(3)(a)(ii) [sic].
    \22\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in

[[Page 18104]]

furtherance of the purposes of the Act. If the Commission takes such 
action, the Commission shall institute proceedings to determine whether 
the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2014-025 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2014-025. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2014-025, and should 
be submitted on or before April 21, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-07039 Filed 3-28-14; 8:45 am]
BILLING CODE 8011-01-P


